What Is Payroll Processing?

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Anna is a young musician who has established her own recording studio. The business she runs is still on a small scale but she wants to get everything right at this stage. Her understanding of how to pay her employees is limited. 

Payroll is the management of payment of wages by an organisation to its employees.  

Annan needs to develop a system that will ensure that her employees are paid a fair remuneration rate, based on the number of hours they have worked and deductions that need to be made. 

Deductions must be processed prior to giving employees a paycheque. This amount is known as net pay. This amount is also calculated following the calculation of overtime that may apply.  

Payroll processing may be manual or done by using software. Alternatively, an external consultant may provide these services. Each option has its merits and disadvantages, so it’s important for a business to make a decision based on what will be best for efficiency and its financial standing. 

Doing it manually is the most time-consuming, while payroll software ensures that payroll is processed quickly. 

It generally includes a three-step process: 

  1. Collection of employee time 
  2. Calculation of resulting earnings 
  3. Paying employees 

For payroll processing to be as efficient as possible, it’s vital for the payroll officer to be highly organised and to be able to pay attention to detail. Any errors that may occur will be costly for the business. Missing any deadlines will result in unnecessary delays. If software is used however, a significant amount of time can be saved.  

This is also likely to affect staff retention. If a company is viewed as unreliable, then it may lead to the company having a bad reputation in the eyes of employees.  

For payroll processing to go as smoothly as possible, a proper system has to be in place.  

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